Incident: The company released its 2023 annual report and its quarterly report for the year 24, achieving annual revenue of 231.91 billion yuan (+8.4%); realized net profit of 10.95 billion yuan (+19.5%); of these, the 23Q4 alone achieved revenue of 76.03 billion yuan (+10.6%); and net profit to mother of 3.58 billion yuan (+29.5%). 24Q1 achieved revenue of $52.41 billion (+4.9%); net profit to mother of 2.47 billion yuan (+22.5%), and the performance was in line with market expectations.

Product innovation has been actively promoted, and dividend payment rates have been greatly increased. As a leading enterprise in the field of precision manufacturing, the company has always focused on consumer electronics, automobiles, communications and other industries. During the reporting period, the company continued to promote product innovation and technological breakthroughs, laying a solid foundation for the company's high-quality growth. 1) By business, the company's consumer electronics/communications/automobile/computer/ connectors and other businesses achieved revenue of 1971.8/145.4/92.5/74.9/3.44 billion yuan for the full year of '23, respectively, +9.8%/+13.3%/+50.5%/-33.6%/-16.1%. 2) In terms of profit margin, the company's gross margin and net margin in '23 were 11.6%/5.3%, respectively, slightly -0.6 pp/+0.4 pp, respectively; the gross margin and net margin for a single 24Q1 were 10.7%/4.9%, respectively, which remained stable from month to month. 3) In terms of cost rates, the company's cost-side control effect is good. The company's sales/management/R&D expenses rate in '23 was 0.4%/2.4%/3.5%, respectively, and the 24Q1 sales/management/R&D expenses ratio was 0.4%/2.1%/3.6%, respectively, which remained stable. 4) In terms of cash flow, the net cash flow from the company's operating activities for the full year of '23 was 27.61 billion yuan, a significant increase of 116.9% over the previous year.

The 24Q1 company's cash flow was -8.4 billion yuan, mainly due to high short-term pressure on accounts payable, compounded by half a year as a result of the traditional low season for consumer electronics. 5) The company's dividend payment ratio increased significantly to 19.7% (+9.5pp).

The acquisition of Qorvo strengthened its integrated advantages and achieved breakthrough progress in the communications business. In terms of consumer electronics, the company promoted the company's leapfrog development from system packaging to module packaging by acquiring all assets of American RF front-end chipmaker Weixun United Semiconductor (Qorvo) in Beijing and Shandong Dezhou. Furthermore, the company is deeply involved in fields such as electrical connectivity, optical connectivity, and heat dissipation, and achieved breakthrough progress in the communications sector business during the reporting period.

At the same time, the company quickly realized cross-border empowerment of products related to the automotive industry in the automotive business sector, and carried out an in-depth layout around products such as high/low voltage wiring harnesses, charging guns, and smart cockpit domain controllers, and product demand is strong.

The troika went hand in hand, and 24H1 performance achieved steady growth. According to the 24H1 performance forecast released by the company, in the first half of '24, the company expects to achieve net profit of 5.23 to 5.44 billion yuan (+20%-25%); deducting non-net profit of 47.9-5.08 billion yuan (+15.3% -22.2%). Looking at Q2 alone, the company expects to achieve net profit of 27.6-2.97 billion yuan (+11.7%-20.2%); deducted non-net profit of 2,61-2.9 billion yuan (+19.7%-33%). The company's consumer electronics business has a solid foundation. Against the backdrop of hardware requirements such as optical/electrical connectivity in data centers and the gradual rise in the penetration rate of intelligent driving, the company is expected to maintain efficient expansion across markets and continue to increase its product share through the capability puzzle of mature process+underlying technology and superimposing the advantages of a large intelligent manufacturing platform.

Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 134/180/20.5 billion yuan respectively, and the compound net profit growth rate for the next three years is expected to reach 23.3%. Considering that the company is expected to benefit from the rapid rise in data center hardware demand and the imminent implementation of several projects in the superimposed automobile business, it maintains a “buy” rating.

Risk warning. Risks include increased competition in the industry, downstream demand recovery falling short of expectations, and R&D progress falling short of expectations.